PNB Gilts up for sale

The second largest public sector bank in the country, Punjab National Bank, is set to divest control over its government securities dealership, PNB Gilts. According to sources, the bank is negotiating with Indian and foreign companies to sell a 44 per cent stake in the subsidiary.

Sources close to the deal said the Mumbai-based financial services company Edelweiss Capital had completed its due diligence last week and was expected to make a final offer soon. Among international players, the US-based financial company JC Flowers has also started discussions with the bank. JC Flowers, along with Japanese Shinsei Bank, had earlier teamed up with Punjab National Bank to bid for a 26 per cent strategic stake in development financial institution IFCI.

Sources said one of the bidders had committed to offer around Rs 45 a share against a current market price of Rs 25, which in turn is at a 10 per cent premium to the book value. At this price PNB Gilts will be valued at around Rs 600 crore. According to takeover guidelines, the stake sale will have to be followed up with an open offer for another 20 per cent stake from the market. PNB Gilts has a paid-up capital of Rs 135 crore and free reserve of Rs 371 crore, placing its net worth at Rs 506 crore.

A senior executive with Punjab National Bank said, "The bank has taken a decision in principle to merge PNB Gilts with the bank. However, the board of directors of PNB Gilts felt they should explore possibilities outside the parent to get a better valuation. Punjab National Bank had offered to merge PNB Gilts at its book value."